By Mak Yuen Teen
Datapulse shareholders would know that as the April 20 EGM draws near, there have been desperate attempts to entrench the existing board and to push through the diversification plan that I believe will lead to a destruction of shareholder value. These attempts include two anonymous documents sent to shareholders. One was a malicious and misleading document which includes statements casting aspersions on my independence, objectivity and motives. While I have responded to the comments about me in an article posted here, I reserve all rights over this. The other document instructs shareholders on how to vote to entrench the current board, reject the proposed directors, approve the ill-considered diversification plan and approve the derisory 1-cent special dividend. If company resources are used to send these two documents, it would be doubly unacceptable.
We do not know who is behind these anonymous documents, but such actions would never be necessary for a board that is seen to be acting in the best interest of the company and all shareholders. Conversely, a board that has not been doing the right thing has everything to fear if a new board is appointed and start reviewing actions of the past board and management, and report to the regulators or take its own actions on behalf of the company.
The current board consists of a Chairman with many questions surrounding him in terms of the corporate governance and performance of companies that he has been associated with and his “inadvertent omissions” of disclosures of regulatory actions and a winding-up petition.
On April 4, SGX issued a second notice of compliance to Datapulse to re-appoint new independent professionals to undertake the independent review of its internal controls and corporate governance practices. It was not surprising to me that the company initially picked a firm with a prior relationship to one of its directors (and varied the scope of the review). Once RHT Law was appointed, it was very natural for me to check for prior relationships, given all the prior relationships that existed amongst the directors, former CEOs, controlling shareholders and vendor. It was not difficult at all for me to find that RHT Capital (an affiliate firm of RHT Law) was the continuing sponsor of OEL Holdings, where the Datapulse Chairman, Low Beng Tin, was chairman and managing director (and OEL Holdings now has a qualified opinion from the external auditors relating to its ability to continue as a going concern). Further, Tan Chong Huat, who was appointed to lead the review, was the contact person for RHT Capital at OEL Holdings. There cannot be any doubt that the independence of the reviewer would be in question. I therefore posted an article about this issue on March 28.
It turns out that SGX agrees and swiftly directed the company to appoint new independent professionals and castigated the company for the omission, which it said is a potential breach of the Securities and Futures Act. Perhaps we need to get used to “inadvertent omissions” if the current board is not removed. It is disappointing that RHT Law did not decline the appointment and even more so that it allowed Mr Tan to lead the review. Perhaps RHT Law and other RHT affiliates need to review their own internal controls and compliance procedures, including independence checks, especially as they act as sponsors or advisers for other companies regarding compliance with rules and corporate governance.
The company’s actions so far clearly show its poor attitude towards corporate governance and transparency, even though it laughingly refers to taking corporate governance seriously. If it was blatant enough to appoint independent professionals who clearly cannot be considered independent even when it was directed by SGX to do so and when the appointment was under such scrutiny, what can we expect in terms of appointment of external auditors, internal auditors, professional advisers and the consultants going forward?
I don’t see how Mr Low can be considered suitable to lead the Datapulse board. Of course, the thresholds required for an individual to be appointed as a director are rather low. Under the law, as long as a director is at least 18 years old, of sound mind (which no one really checks), is not an undischarged bankrupt, has not been disqualified and is alive (even if barely), he can be a director. This is why the quality of directors, including independent directors, for SGX-listed companies is often questionable. Of course, SGX can object to a director being appointed if he has been reprimanded or even call for a director to resign as we have seen in the Midas Holdings case. But directors are rarely reprimanded and SGX will only intervene in extreme cases. Therefore, it looks like in the Datapulse case, it will be up to the shareholders to vote to remove Mr Low – although I remain hopeful of regulatory action against him for his “inadvertent omissions”.
The other three directors who have been proposed for removal lack independence and relevant experience as directors of listed companies, and their prior work experience and relevance to Datapulse is also questionable. Two of them also participated in the hasty Wayco Manufacturing acquisition, while the newest kid on the block, the CEO and executive director, is learning the lyrics of the songs sung by the other directors (since he is new, he is merely repeating what the others have said, trying to sound like he really knows what he is talking about after flying here from Hong Kong where he was based). Therefore, I have advocated that they should also be removed.
I have just this morning (April 10) posted an article about why the proposed diversification plan is not only poorly conceived but there are also serious questions about disclosure and ownership of the trademarks for Wayco. One of the arguments that the board has been using to justify the hasty Wayco acquisition is the risk of Datapulse becoming a cash company. In one of my first articles on Datapulse, when I was commenting on the actions of the previous board in agreeing to sell the existing property for its manufacturing activities before they had secured a new property (the latter ultimately fell through), I had mentioned the risk of the company becoming a cash company if it does not secure new business. However, this does not mean just rushing into it because the SGX rules do allow companies a reasonable amount of time to find a new business before it is delisted and also imposes certain safeguards while it is a cash company.
In fact, a company has 12 months from the time it becomes a cash company, together with a maximum 6-month extension. So, it has 18 months. There was absolutely no need for the company to buy the new business one day after the new board was formed and no need for the directors to be discussing it about two weeks before they were even appointed as directors because of a deadline imposed by the vendor. The minimal due diligence they did is unlikely to be sufficient. It’s not even clear that the board knows about the status of the trademarks which I wrote about. The specific conditions that may trigger the “buyback clause” which requires the vendor to buy back Wayco are anyone’s guess and as I have argued in previous articles, may actually benefit the vendor (for example, if old plant and equipment are replaced before Wayco is sold back to him).
Further, even if the board buys the other two Way companies too, the market share of these companies in the hair care business which is dominated by multinational giants is so small that it will not be a meaningful diversification. The way I see it, the diversification will allow the vendor to exit the hair care business, selling companies with aged property, plant and equipment and doubtful intangible assets (with some properties valued by independent valuation supplied by the vendor thrown in) to Datapulse.
The reality is that when a company’s existing business is disrupted and it fails to anticipate and manage it, finding new areas of business is not easy. If we look at companies like Venture Manufacturing which operate in industries that are subject to major technological changes all the time, they are able to be successful for long periods of time because of their close working relationships with key customers and their ability to adapt to these customers’ changing needs and demands. Other companies that fail to do so then have to exit. They can try to reinvent themselves by finding new areas of business, which may be very difficult because they do not have the right skills and experience in the board, management and staff. Few companies choose the option of just selling the entire company or doing a voluntary liquidation and distributing cash back to shareholders because the board and management want to entrench themselves. In many cases, this would be the right thing to do. This may well be the case for Datapulse.
